Advancing Genuine Progress

Note: The McClatchy-Tribune News Service distributed this op-ed, which appeared in newspapers across the United States.

To many Americans, the recession seemed to come out of nowhere.

In late 2004, the Gross Domestic Product (GDP) was soaring at a robust rate of over 4 percent per year. Powered by a billowing housing bubble, the prospects for continued prosperity seemed comfortably high.

HikingArtist.com/Flickr

Then, the economy collapsed into the Great Recession. Ever since, analysts have devoted considerable attention to why that happened. But few have questioned how our nation’s leading economic indicator failed so utterly to flag the coming crisis. And fewer still have pondered what other options for tracking economic progress might better help avert future meltdowns.

Fortunately, some observers have done this pondering – and then acted upon it. In 2009, with the economic crisis still ravaging the nation, Maryland Gov. Martin O’Malley established a new metric: the Genuine Progress Indicator. The GPI can more precisely assess what has gone right and wrong in the state’s economy.

Maryland ranked as the richest state in the U.S. in 2011, with a median household income of $70,000 – a full $20,000 higher than the national average. Just like the GDP, that ranking disguises the true story of Maryland residents.

It turns out that in Maryland, along with the rest of the nation, nothing has gone more wrong over recent decades than the distribution of wealth, income, and opportunity. Inequality has grown steadily worse in the state, with the richest 3 percent now raking in more than 36 percent of total income, while the poorest 24 percent bring in just 9 percent. But inequality manifests in so many other ways. And wealth, meanwhile, is far more concentrated than income.

The poor in Maryland bear the brunt of environmental degradation, crime, family stress, unemployment, poor health and unsafe living conditions. As the ranks of the poor grow and the inequality divide widens, the overall well-being for all Marylanders is declining.

Yet GDP, and its state-level variant Gross State Product, don’t track inequality at all. The top 1 percent can get ever richer, the bottom 99 percent ever poorer, and these indicators only measure economic growth.

Income inequality is one of the 26 things that Maryland’s Genuine Progress Indicator measures. The GPI also addresses inequality in other dimensions – such as access to quality education, exposure to environmental toxins, and the amount of time Marylanders spend with their families.

The Center for Sustainable Economy and the Institute for Policy Studies (http://www.ips-dc.org/reports/closing – the – inequality – divide) recently researched whether the GPI could be used to estimate the potential economic impact if Maryland returned to a level of equality attained in 1968 – when the state’s income distribution was the most even.

The good news is that economic benefits from this shift would amount to more than $65 billion each year, an amount that is two times larger than the state’s entire budget. A return to more progressive economic policies in place in the state four decades ago would help bring this about.

Why should we make these changes and rely more on the GPI in the future? Well, to put it simply, standard economic growth indicators aren’t yielding enough information. They function like a giant calorie counter. The GPI, by contrast, can pinpoint which calories can make us healthier – and which might eventually kill us.

Had the GPI been in place at the federal level in 2004, the yardstick might have provided advance warning that the economic meltdown was about to occur, allowing us to take preventive action. Now that it’s being deployed in Maryland, this new indicator will continue to shine the light on smart economic policies that will truly advance genuine progress for all.

Daphne Wysham is a fellow at the Institute for Policy Studies where she directs the Genuine Progress Project. Dr. John Talberth is president and senior economist for Center for Sustainable Economy, where he helped pioneer the Genuine Progress Indicator. They are two of the three co-authors of the recent report Closing the Inequality Divide.